1. The future for educated workers in the United States Economy McKinsey & Company July 12, 2012 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2. McKinsey & Company | 1 The jobs challenge is bigger than people think

3. McKinsey & Company | 2 The US has lost 3 to 5 times as many jobs as those lost in any other post-war recession 2001-20101981-821990-91 3X 5X Millions of jobs lost from peak prior to recession SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

4. McKinsey & Company | 3 The US is a long way from recovering the lost jobs Millions of jobs -6.7 2.1 -8.8 2007-20102010-2011Net jobs lost SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

5. McKinsey & Company | 4 1Total employment equals the number all employed workers in the economy, including full-time, part-time, and self-employed 2Net employment change as a share of total employment in the base year (e.g., 1990 for 1990s) SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis Young people without a high school diploma Young high school graduates Young college graduates College graduates Unemployment rates vary by degree level Percent

6. McKinsey & Company | 5 In the long term, the cost of unemployment is in the trillions of dollars USD billions UI pay- outs Lost output due to unemployment Lost lifetime income for today’s unemployed 400 2,500 4,500 SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

7. McKinsey & Company | 6 A quarter of Americans surveyed “feel the American dream is not really alive today” 198620112003 Percent of surveyed

8. McKinsey & Company | 7 A new job market ?

9. McKinsey & Company | 8 The US is entering the third and likely longest “jobless recovery” of the last 20 years 2008 1 ? 15 200119901981197319691960195719531948 Year in which the recession began “Jobless recoveries” 1GDP returned to its pre-recession peak in December 2010 SOURCE:U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; McKinsey Global Institute analysis Gap between GDP returning to pre-recession peak and employment returning to pre-recession peak Months

10. McKinsey & Company | 9 In recent recessions, employment has suffered disproportionately compared to productivity SOURCE: U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; McKinsey Global Institute analysis How GDP decline is reflected in employment and productivity 1 Productivity loss Employment loss 2007–09 2 98 2001 2 98 1990–91 75 1981–82 51 1973–75 32

11. McKinsey & Company | 10 The US would have 2.4 million more jobs had the 2007 rate of start-ups continued The number of new businesses has declined dramatically in this recession SOURCE:US Bureau of Labor Statistics; McKinsey Global Institute analysis Change in number of private-sector establishments launched every year March 1993 to March 2010, 1 thousand 1Calculated using US Bureau of Labor Statistics Business Employment Dynamics data set; the annual number indicates the number of businesses less than 1 year old that were in existence in March of that year 2000 634 505 -23% 201009 548 08 627 07 656 06 667 05 633 04 603 03 609 02 612 01 631 2

12. McKinsey & Company | 11 Mismatch: Workers don’t have the skills to transition from lost jobs to new jobs in growing sectors Healthcare 1.4 Construction -2.2 Change in number of jobs by field Millions of jobs (2007 – 2011) Change in number of jobs by education level Millions of jobs (2007 – 2011) College graduates 1.6 High school graduates -3.1 High school dropouts -2.2 SOURCE: U.S. Bureau of Labor Statistics 3

13. McKinsey & Company | 12 Mismatch: The unemployment rate today varies widely across the United States… Unemployment rate % unemployed >10% 9–10% 8–9% 7–8% 6–7% 5–6% <5% SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis 3 Virginia 6.3% South Carolina 11.1% Texas 8.5% California 12.1% Nevada 13.4% North Dakota 3.5% Michigan 11.2%

14. McKinsey & Company | 13 Long-run average = 18% 20092000199019801970 1 19601950 … but mobility in the United States has been declining since 1990 and is at a 50-year low SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis 1Data from 1970–1981 are interpolated due to data constraints. Annual domestic migration rate, 1948–2009 % of residents who have changed addresses during the past year... but that figure has now dropped to 1 in 10 In the 1950s and 1960s, 1 in 5 Americans changed residences every year... 3

15. McKinsey & Company | 14 1 Total employment, including self-employed and part-time workers 2 New entrants include student inflows, net immigration inflows, return of discouraged workers, and exits of retirees SOURCE: Bureau of Labor Statistics’ Current Population Survey; McKinsey Global Institute analysis Full employment in 2020 1 160.4 Net new entrants to workforce 2 14.3 Replace lost jobs7.1 Employment In 2010 1 139.1 How many jobs does the US economy need to produce? 21 million Employment needed to achieve 5% unemployment rate by 2020 Millions MCKINSEY CONFIDENTIAL AND PROPRIETARY

16. McKinsey & Company | 15 1Total employment equals the number all employed workers in the economy, including full-time, part-time, and self-employed 2Net employment change as a share of total employment in the base year (e.g., 1990 for 1990s) SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis 1970s20.6 1980s19.5 2000-102.2 2000-079.2 1990s18.1 1960s12.9 1950s6.9 Is it possible to produce 21 million jobs? Increase in total employment 2 Percent 12 20 26 20 15 7 2 3.5 4.2 3.2 3.4 2.4 1.7 Net employment change Total employment 1 Millions Real GDP compound annual growth rate Percent

17. McKinsey & Company | 16 Skill Speed Share Spark

18. McKinsey & Company | 17 Ensure more Americans acquire the skills that match employers needs Bachelor’s degree or higher Associate degree Some college, no degree High school graduate No high school diploma Supply 168.9 56.5 19.6 29.1 44.1 19.5 Demand 1 163.3 58.0 17.7 30.7 43.3 13.6 SOURCE: U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis Demand vs. supply – 2020 projections Millions 1 Labor demand from MGI high job-growth scenario Difference +5.9 +0.8 -1.6 1.9 -1.5

19. McKinsey & Company | 18 Help US workers to win market share Number of overseas visitor arrivals in the United States, 2000-2009 Million Manufacturing Professional services Administrative support Health care Financial services Arts and recreation Other services Transportation Retail trade Hospitality services171 Other 1 Estimated U.S. jobs lost due to shrinking market share in international travel Thousand SOURCE: U.S. Travel Association; Oxford Economics; McKinsey Global Institute analysis 34 24 08 36 25 07 34 24 06 31 22 05 29 22 09 27 20 03 23 18 02 24 19 01 24 22 2 2000 26 0 04 Actual overseas visitors Potential visitors lost

20. McKinsey & Company | 19 Restore the new business growth engine 09070503019997959391878583817977 SOURCE: BDS, Kauffman 1 Startups refer to new businesses, i.e. firms less than 1 year old Entire economy Entire economy without startups Net job creation in US establishments Thousands of employees

21. McKinsey & Company | 20 Speed up processes “The real threat to our industry is the slow, cumbersome, and out-of-date system that we use to manage our” - Executive of Corporation “It is much easier to site and build a factory in China than it is in the US. For a manufacturer, two year advantage in building a plant may be everything” SOURCE: RFF “Reforming Permitting”; expert interviews US has a lengthy and complicated set of regulatory/ permitting requirements This lack of speed can act as a major competitive disadvantage Other A power plant built in Wisconsin required 46 environment approvals EPA US Army Corp of Engineers FAA FERC Six state agencies State historical society City, country, and others 46 environ- mental reviews

22. McKinsey & Company | 21 Thank you